More shoppers, digital growth give Walmart Q2 boost
BENTONVILLE, Ark. — Walmart reported better-than-expected results for its second quarter amid surging online sales and an increase in store traffic.
Walmart's total revenue for the period ended July 31 rose 2.3% to $123.36 billion for the quarter, better than analysts had expected. U.S. store visits increased 1.3% over the year-ago period.
Same-store sales for U.S. stores, excluding fuel, rose 1.7%. It was the discounter's 12th consecutive quarter of comparable sales gains. Sales rose 1.2% at Sam's Club, and 1.8% at Walmart.
Online transactions surged 60%, boosted by new digital initiatives, including the acquisition of e-commerce players like Moosejaw and Modcloth, and an expanded assortment of merchandise.
"Sales growth is coming from across the business – including stores, e-commerce and a combination of both," said CEO Doug McMillon in a statement.
The company reported low single-digit comps increases in its health and wellness segment, noting that customer traffic, branded drug price inflation and script growth drove solid performances in sales of both pharmacy and over-the-counter products. (The company’s Sam's Club division's health and wellness segment saw mid-single-digit comps increases, which it attributed to generic script count momentum and strong performance in nutrition and protein drink sales).
A particularly bright spot for Walmart was food, which had its best same-store sales quarter in five years. The performance bodes well for the chain which is more than holding its own in the midst of brutal competition from the likes of Aldi, newcomer Lidl and Amazon.
Neil Saunders, managing director of GlobalData Retail, said that Walmart's continued investment in everyday low prices is helping to drive its success in grocery.
"As the grocery sector enters one of its toughest phases, we believe that Walmart is well positioned to make further gains," Saunders said. "It is one of the few firms that have the firepower to cope with the push towards compressed prices and margins."
Walmart has been investing heavily in its online operations and in price promotions. Those efforts took a toll on the chain's margins and net income.
"We note the decline in net income, but believe that some short term erosion is necessary as the business invests in its future," Saunders commented. (For more of his commentary, click here.)
Net income fell 23% to $2.9 billion, or 96 per cents per share, from $3.7 billion, or $1.21 per share, in the year-ago period, at least partly due to a loss from repurchasing debt after a bond tender offer.
Excluding special items, the discounter reported adjusted earnings per share of $1.08 a share, topping analysts' estimates of $1.07 per share.
Gross margins were down 11 basis points to 25%, including a five-basis-point decline in the United States. Operating margins fell to 4.9% from 5.1%, and U.S. operating expenses rose 3.9%.
"Strategic price investments in key markets and the growing mix of our e-commerce business reduced the gross margin rate," Walmart CFO Brett Biggs said in a statement.
Walmart raised the low end of its earnings outlook for the full year, now forecasting profit ranging from $4.30 to $4.40 per share, adjusted. Previously, the retailer said it expected to earn $4.20 to $4.40 a share. Analysts were calling for earnings per share of $4.37.
CVS Pharmacy to acquire 20 Fagen Pharmacy locations
WOONSOCKET, R.I. — CVS Pharmacy will be acquiring 20 Fagen Pharmacy locations in northwest Indiana and northeast Illinois, the company announced Wednesday. Eight of the locations will be converted to CVS Pharmacy stores and 12 will be closed, with their files being transferred to nearby CVS Pharmacy locations.
“I’d like to thank all of our patients and employees for their loyalty and dedication over the past 45 years,” Fagen Pharmacy owner Gerald Fagen said. “I’m grateful to have been able to serve the pharmacy needs of our community and I am confident that CVS Pharmacy will provide the same top-notch customer service and pharmacy expertise we have provided at Fagen Pharmacy.”
The two companies said they were working to make the transition as seamless as possible. CVS Pharmacy said that it expects to hire many current Fagen Pharmacy employees currently working at the locations. Indiana stores in Crown Point, Valparaiso, Gary (two stores), East Chicago, Whiting, Michigan City and Griffith will be converted in September. Indiana stores closing include three in DeMotte, two in Valparaiso and one each in Rensselaer, Valparaiso, Portage, Gary and Hobart, as well as Illinois stores in Hobart, Beecher and Hammond.
“CVS Pharmacy looks forward to bringing its innovative pharmacy care programs and services to Fagen Pharmacy patients in Indiana and Illinois,” CVS Pharmacy area VP Everett Moore said. “We will continue to provide excellent care to patients and look forward to introducing our industry-leading offerings at these new locations.”
Per CVS Pharmacy’s 2014 decision not to sell tobacco products, none of the locations being converted will sell tobacco products. They will introduce a range of health, beauty and personal care products, exclusive private-label products and the CVS Pharmacy ExtraCare program, the companies said.
Target bounces back in Q2
MINNEAPOLIS — Target came roaring back in its second quarter from a year-long sales slump amid evidence that its investments in online and store remodels are paying off. The discounter raised its outlook for the year.
Sales rose 1.6% to $16.43 billion in the quarter ended July 29, beating analysts' estimates of $16.30 billion. Same-store sales rose 1.3%, also more than analysts had expected. Comparable digital sales surged 32%.
Net income fell to $672 million, or $1.22 per share, from $680 million, or $1.16 per share, in the year-ago period. Excluding items, Target reported earnings of $1.23 per share, beating the average analyst estimate of $1.19.
On its quarterly call, Target gave an update on its store remodeling and new store plans. The retailer now plans to remodel more than 300 stores in 2018, up from its original 250.
Target also plans to nearly double the number of smaller-format stores it will open this year, with 15 new locations announced for 2018 and "more to come," CNBC reported.
In addition, Target is expanding its private label lines, and will launch two apparel brands, a home goods brand and an athleisure brand this fall. More are in the works.
In a statement, Target chairman and CEO said that the company was particularly pleased that second-quarter traffic increased more than 2%, reflecting growth in both its store and digital channels.
“We continue to focus on our long-term strategy, as we work to transform every part of our business and build an even better Target that will thrive in this new era in retail," Cornell said. "While our recent results are encouraging, we will continue to plan prudently as we invest in building our brands, our digital channel, the value we provide our guests and elevating service levels in our stores.”
For the full year, Target has forecast earning between $4.34 to $4.54 per share. Analysts had called for earnings per share of $4.39 in 2017, falling on the lower end of Target's updated range.